Commerzbank analysts highlight that ECB President Lagarde has opened the door to a September rate hike, with sources suggesting euro area inflation must improve markedly to avoid tightening. They stress that current conditions again match ECB’s baseline scenario, while weak PMIs and Oil-driven inflation risks make preventing a hike an uphill struggle for the Euro area economy.

Lagarde guidance keeps tightening expectations alive

"Lagarde opened the door for a rate hike in September, stating that inflation risks are pointing upwards again and that some Council members already mulled over the need to hike as early as this week. Although changes to the ECB's official wording compared to the June assessment were subtle, Lagarde reminded that the current situation aligns again more with the ECB's baseline scenario."

"This is in contrast to the Sintra assessment three weeks ago, when inflation risks appeared more balanced. Sources confirmed that the inflation outlook would need to improve again markedly to prevent a September hike, which looks like an uphill struggle given the current oil price dynamics."

"ECB: Council is prepared to hike in September unless euro area inflation outlook improves markedly. Nagel sees ECB in good position, says "it was right keep rates steady this time"."

"ECB considers several options to mitigate its financial losses, including not paying interest to banks on some of their excess reserves or even charging them fees."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)